IntrotoEconomicsUnit1Asagroup,brainstormeverythingthatcomestomindwhenyouthinkof“economics.”Examples:Whatdoyouthinkeconomicsinvolves?Wheredowesee/heartheword“economics”intheworld?Whathaveyouheardpeoplesayabouteconomics/theeconomy?WhatisEconomics?ChapterObjectivesExplainwhatisstudiedinthefieldofeconomics.Describethethreebasictypesofeconomicresources.Explainthebasiceconomicproblem.Constructaproduction-possibilitiescurvefromdataconcerningtwoproductsandshowonthecurvetheeffectofachangeintheefficiencyofproducingoneorbothproducts.Calculatetheopportunitycostofagiveneconomicdecision.Definetheterms‘standardofliving,’

‘productivity,’

‘efficiency,’and‘effectiveness.’Identifythethreebasicquestionsofeconomics.Whatisstudiedineconomics?Economics:ThestudyofthedecisionsasocietymakesconcerningtheproductionofgoodsandservicesandthedivisionoftheseamongitspeopleRelatedtopics?Whatisstudiedineconomics?Macroeconomics:dealswiththeperformanceoftheeconomyasawhole—suchasrecession,inflation,unemployment,andinternationaltradeandfinanceMicroeconomics:focusesonparticularaspectsoftheeconomy—suchasconsumerdemand,supply,pricesundervariousconditions,theroleofbigbusiness,labourunions,andspecificindustries(e.g.agriculture)orspecificissues(e.g.theenvironment)“Theeconomicproblem”=toomanywants,notenoughresourcesOntheisland,wehadneedsandwantsbutonlycertainresourcesavailabletousThreeBasiceconomicinputsInputs:Economicresources,suchaslabour,capitalequipment,andnaturalresources,thatareusedtoproducegoodsandservicesThreeBasiceconomicinputs2.Capital(Equipment):Thetools,equipment,machinery,andfactoriesusedtoincreaseproductionperworkerThreeBasiceconomicinputs3.Land:Shortformforallthenaturalresourcesavailabletoasociety’seconomyaseconomicinputsFigure1-2:ThebasicoperationofanyeconomicsystemOUTPUTINPUTSEconomicSystemLabourCapitalEquipmentNaturalResourcesGoodsandServicestosatisfyhumanneeds/wantsThebasicEconomicProblem:ScarcityScarcity:Theproblemthat,whileeconomicinputs(andthuspotentialoutput)arelimitedinavailability,people’swantsandneedsareapparentlyunlimited(Limited)ThebasicEconomicProblem:ScarcityBecausewehavelimitedresources,wefaceopportunitycosts.OpportunityCost:TheconceptthattherealeconomiccostofproducingsomethingisthelostopportunitytoproducesomethingelsethatcouldhavebeenproducedwiththesameinputsOpportunityCostexampleWhenyouralarmwentoffthismorning(oryouwerewokenupbysomeone),whatchoicedidyouface?Choice1:GetupnowChoice2:SleepinmoreAlternatives:GetupnowDon’tgetupnow—getuplaterPerceivedbenefits-Don’thavetohurrytogetready-Timetoreviewforschool-Moresleep-StaywarmActionTaken?OpportunityCost?PhilosophicalFUnPeoplecan’tescapeopportunitycosts.Theyareaninherentpartofalldecisionmaking.Isiteverreallytruethatyou“don’thaveachoice”?ChapterObjectivesExplainwhatisstudiedinthefieldofeconomics.Describethethreebasictypesofeconomicresources.Explainthebasiceconomicproblem.Constructaproduction-possibilitiescurvefromdataconcerningtwoproductsandshowonthecurvetheeffectofachangeintheefficiencyofproducingoneorbothproducts.Calculatetheopportunitycostofagiveneconomicdecision.Definetheterms‘standardofliving,’

‘productivity,’

‘efficiency,’and‘effectiveness.’Identifythethreebasicquestionsofeconomics.Explicitvs.ImplicitcostsExplicitcosts:aremonetarycosts(e.g.measuredindollarsorexpensespaid)Implicitcosts:arenon-monetarycostsandopportunitycostsProduction-PossibilitiesCurve(PPC)APPCisawaytoillustratetheproblemofscarcityProduction-possibilitiescurve:acurvethatshowstheeconomy’spotentialoutput,assumingthateconomicinputsarefullyemployedandefficientlyutilizedOptionA:Canproduce15vegetables,butzerofishOptionB:Canproduce14vegetables,and1fishOptionC:Canproduce__vegetables,and__fishPointY:Ifproductionisatthispoint,inputs(e.g.labour&capital)arenotbeingusedefficiently.Itispossibletoproduceatthispoint(whichisbelowpotentialoutput).PointX:Therearenotenoughresourcestoproducethiscombination.YoucannotproducebeyondthePPC.However…Thecurverepresentsthesituationataparticularpointintime,giventheeconomicresourcesavailable.Ifyouweretoimproveoraddtoyourresources(e.g.bybuildingmoreadvancedcapitalequipment),potentialoutputofbothfishandvegetablescouldincrease…Byaddingorimprovingeconomicresources(e.g.developingnewtechnology),potentialoutputincreasesatallpointsofthecurve.PPCAssumptionsPPCcurvesarebasedontwoassumptionsAllavailableinputsareusedInputsareusedasefficientlyaspossible(e.g.nothingwastedorunused)Otherwise,outputwouldbebelow/underneaththecurveThus,PPCrepresentspotentialoutput(ascenariowhereallinputsarefullyemployedandefficientlyused)Wecanexpressopportunitycostintermsofvegetableproductionlostforeachadditionalkgoffish(e.g.theOCofthe1stkgoffishis1kgofvegetables)Alternatively,wecancalculatetheOCforanygivenamountoffish(e.g.TheOCof4kgoffishis10kgofvegetables;ifthe4kgoffishwerenotproducedatall,wecouldhavehad15kgoffishinsteadof5kg,soanOCof10kgoffish)ImplicationsoftheproblemofScarcitySincewecannothaveeverythingwewant,itisimportantthatweuseresourceswisely:Effectiveness:ameasureofhowwellaneconomyperformsintermsofproducinggoodsandservices(outputs)thatareneededandwantedEfficiency:ameasureofhowwellaneconomyperformsintermsofproducinghighvolumesofoutputsatalowproductioncostperitemThemoreefficientandeffectiveaneconomyis,thehigherthevolumeofgoodsandserviceswillbe(atalowercost).Thisleadstoahigher__________________.ThreebasicquestionsofEconomicsWhattoproduce?Howtoproduceit?Whogetshowmuch?(Dividingtheeconomicpie)1.Whattoproduce?ConsumergoodsorCapitalGoods?ConsumerGoods:goodsthatcanbeenjoyedinthepresent(e.g.food,fuel)Pros:PresentenjoymentofhigherstandardoflivingCapitalGoods:tools/equipmentthatwillincreaseproductiveefficiencyinthefuturePros:Future